Bullard pops bulls’ happy interest rate balloon as stocks plummet

Hawkish St. Louis Fed President torpedoes already wavering stock market, inferring that U.S. interest rates might get hiked in April.

James Bullard, president of the Federal Reserve Bank of St. Louis. (U.S. Government photo, public domain)

WASHINGTON, March 24, 2016 – As long as the Maven has lived in northern Virginia, not far from the nation’s capital – nearly half a century with only a four-year break—he’s been profoundly disturbed by the way government officials and politicians pop off to make themselves look good without regard to what their words might cause for good or ill.

Lately, however, many of the stock market’s current ills, including out-of-control volatility, can be attributed to Federal Reserve presidents and governors trumpeting their own “considered” opinions with the obvious intention of embarrassing—and perhaps thwarting—majority opinions within the Fed itself. It’s the kind of jawboning we used to expect from hack politicians, but rarely if ever from the Fed, which used to speak with one voice, at least publicly. Today, we’re concerned with the blabbermouthing coming from St. Louis Federal Reserve president James Bullard.

Lately something of a permahawk, Bullard popped off this morning to Reuters:

Another U.S. interest rate hike “may not be far off” after the Federal Reserve stood pat last week and made only minor downgrades to economic forecasts, St. Louis Fed President James Bullard said on Thursday.

Bullard, who voted to support the March policy decision, noted in a speech that the labor market had improved since December. “As it turns out, the decision to pause seems to have put more weight on the global and U.S. growth downgrade,” he said in prepared remarks.”

The Maven’s immediate, calm and measured reaction upon reading this was “WTF?”

Oil prices are moving up at least to the point where U.S. drillers and wildcatters just might be saved from a massive, class action Chapter 11 filing. Further, with the dollar weakening just enough so that U.S. exported goods might still remain attractive on foreign markets and with absolutely no sign of real inflation on the horizon, the “decision to pause” hiking U.S. interest rates has “put more weight on the global and U.S. growth downgrade?” What does that comment even mean?

Read also: Stocks and bonds: Good Friday trading schedule

Before markets opened Wednesday, they were prepared to take a hit, given fallout from the Islamofascist massacre in Brussels. And a hit was what they got. Already weakened by this news, markets felt like the wanted to get back into equilibrium Thursday, given this Good Friday-shortened trading week.

ETF Digest’s Dave Fry drills down further on this geopolitical point:

Geopolitical risks have soared given Belgium terror attacks. Given Paris attacks previously bulls now take into consideration the prospect of more attacks, especially after authorities revealed a network of nearly 400 operators in Europe. Further, it isn’t just any coincidence that American Airlines was the target of Belgium at the company’s area. Therefore, these facts have investors and authorities alike now fearing a long period of more and longer lasting campaign strikes. War is now at hand and Europe and other countries (including the USA) are now paying the price for loose emigration policies that beget a Trojan Horse of terrorists.

So Bullard hits the markets upside the head—again—and down stocks and the major averages go as the long weekend approaches.

Being thinly traded this week already due to the upcoming Easter holiday, we’d expect the selling to pick up this afternoon once what Dave Fry calls the “2:15 Sell Program Express” leaves the station. After all, after first Paris, then Brussels, who the heck wants to be holding big stock positions over a long weekend, anyway? Then Bullard steps in it with his ill-timed comments, adding gasoline to the fire.

With commodities still essentially in decline, where the Sam Hill is all the inflation? Where the heck are the massive working-class wage increases that we haven’t seen since the days of LBJ? (Except for teachers’ unions, of course.)

Where the heck is any evidence that we need to run helter-skelter jacking up interest rates? Yeah, we should do that… some day. But why at this precise moment in this uniformly awful moment of our uniformly awful 21st century history? It makes zero sense, particularly when everyone else in the world seems hell bent on eliminating interest rates, at least in the short term.

If we continue to raise interest rates here “just because,” what will this do for our perpetual trade imbalance? We could go on, but you get the picture.

Earlier in the week, we promised some new trading tips. Well, for us and probably most other investors—and even the machines—that’s off the table now, given this week’s unsettling news.

As for now, let’s finish grousing about the terroristas and Bullard and take some time off (at least for those who care) to celebrate Christianity’s greatest liturgical holiday, Easter Sunday. More than ever, “resurrection,” even in a secular sense, is a theme we badly need to revisit in this country before it’s too late. Hopefully, some Americans, at least, will ponder this as they gather together with their families and friends this weekend.

As for us, we’ll see you again on Monday.

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